CANADA Law and Practice Contributed by: Clifton Prophet, David F W Cohen, Virginie Gauthier, Thomas Gertner and Kate Yurkovich, Gowling WLG
a proposal or plan, the courts will compare the treat - ment of creditors under the proposal or plan with the treatment that they would receive in bankruptcy or liquidation. Failure to Observe the Terms of Agreements Proposals under the BIA Where there is default in the performance of a pro - posal, the proposal trustee must give notice of default to the creditors and the government insolvency regu - lator. Following default, or where it is determined that the proposal cannot continue without injustice or undue delay, the court is empowered to order that the proposal be annulled. The court may also annul proposals obtained by fraud. If a proposal is annulled, the debtor will be deemed to have made an assign - ment in bankruptcy and a trustee will be appointed. Plans under the CCAA Where there is default in the performance of a plan, upon application by a creditor or the monitor, the court is empowered to make whatever order is just in the circumstances, including an order adjudging the debtor to be bankrupt. Sale of all or part of the debtor’s business through CCAA proceedings or BIA proposal proceedings Sales of all or substantially all of a debtor’s assets require court approval. For standard asset transac - tions, the debtor will apply to the court for an approval and vesting order, approving the sale transaction and vesting out of all pre-existing secured and unsecured claims against the purchased assets, such that the buyer acquires the debtor’s title free and clear of claims and liabilities asserted against those assets. Reverse vesting transactions must also be approved by the court pursuant to the terms of an approval and reverse vesting order. When considering whether to grant an approval and reverse vesting order, courts will consider, among other things: (i) whether the reverse vesting order is necessary in the circumstances; (ii) whether the reverse vesting structure would produce an economic result at least as favourable as any other viable alternative; (iii) whether any stakeholder would be worse off under the reserve vesting structure than they would be under any other viable alternative; and (iv) whether the consideration to be paid for the
debtor’s business reflects the importance and value of the non-transferrable assets (ex. the licence, per - mit or other intangible asset) being preserved under the reverse vesting structure. Overall, courts have stressed the importance of fairness and a strong evi - dentiary record demonstrating why a reverse vesting order is superior to other options.
4.4 The Position of the Debtor in Restructuring, Rehabilitation and Reorganisation Position of the Company
As noted, in debtor-initiated CCAA and BIA proposal proceedings, the debtor company remains in posses - sion of its property and the debtor company’s man - agement is entitled to continue to conduct its busi - ness, subject to oversight by the CCAA monitor or proposal trustee. In certain circumstances, or in creditor-initiated restructuring proceedings, the applicant creditor may and often will appoint a chief restructuring officer to replace management of the debtor and operate the debtor corporation throughout the restructuring pro - ceedings. Restrictions on a Company’s Use of Its Assets As a general principle, a debtor will seek court approv - al prior to the sale of assets that are non de minimis in value. In CCAA and receivership proceedings, the initial order and appointment order set out a dollar thresh - old at which court approval must be obtained prior to consummating a sale transaction. In determining whether a transaction should be approved, a court will consider, among other things: • whether sufficient effort has been made to maxim - ise the purchase price; • the interest of all stakeholders in the transaction; • the efficacy and integrity of the process by which the assets were marketed; and • whether there has been unfairness in the marketing process.
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